My Biggest Fear Flipping Foreclosures. Please Advise
Hi:
I am a newbie to foreclosure investing, and REI for that matter. I have been reading all the great stuff on this website and have ordered a few foreclosure books and courses.
Here is my fear/question. let's say you pick up a pre-foreclosure property. Even if comps for the property indicate that the property is worth a particular value, how can one get an indication of HOW LONG the property will be on the market before I can flip it -- i.e., how long until someone buys it from me?
To me, I see a parallel to the stock market and volume indicators. For example, a stock may trade at $100 at low volume or at $100 at high volume. If the stock is worth $100, you may not find a buyer if trading volume is low.
So, to me, comps do not provide an investor with the whole story. It appears that, to be assured of a quick flip, the investor has to get a feel for the volume demand for a particular area. Even if you get $100,000 in equity, I think it would be a hard flip if properties in the area are not selling, regardless of the property values for that particular area.
To me, I would rather buy in an area that has a high turn-over rate. That way, there will be a higher probability of a quick flip.
Is my analysis flawed? If not, how can I get an indicator of the volume sales for a particular area as opposed to comps. Is there a service out there that can give me an indicator of sales volume for a particular area?
thanks in advance!
-Bryan
How about a simple solution from an old country boy? Know your market like the back of your hand! Disposition should be the determining factor in ANY purchase decision.
As a wholesaler, rehabber and landlord, my disposition market is very wide - therefore I can buy in any neighborhood. There is a viable market for almost every property. You just need to BUY FOR DISPOSITION.
Being a Jacksonville Florida native, I farm a market that viable for out-of-town investors. I can sell almost any nicely renovated rental property for +/-85% of true appraisal value. Conversely properties in better communities can be retailed for 100% of appraisal.
Your greatest asset as an investor is to KNOW YOUR NEIGHBORHOOD. I never try to sell to homeowners in rental areas and never rent in resale areas. When you rent in resale areas, you pay too much in relation to rents and therefore return is low. Rentals should be purchased for cash-flow only.
Forget "days on the market". Take a walk in the neighborhood on a Friday afternoon. If you find yourself walking a little fast and wishing you had left your wallet in the car - THIS IS A RENTAL AREA. Buy at a price you can resell to a LANDLORD.
We often "analyze" to find an answer that "common sence" will provide.
For additional tips, visit my website at www.joelocklear.com.
as for comps. i do my own...... if you look at enough prop. in a given area you will learn to know this. when i started i looked at homes for most of my time off, i enjoyed it. i talked to many agents. i learned the market. you can find the sell price of homes in an area on-line county records. check several sell prices in the area. this will give you the "comparable" price......km
Once again guys -- thanks for all the great info and advice.
By the way, I found a great real estate research site -- www.radcribs.com
The site provides me with everything I would need to know about the property and the neighborhood -- Market value, crime stats, pricing trends, comps, school info, building size, lot size, historical and estimated property taxes, mortgage info, title and owner history, zoning, -- The works!! Only catch is that it is a pay-for service -- about $30/month and only appears to cover properties in the NYC area.
-Bryan
Very good observation and frankly not something that people bring up in these forums often.
Part of using comparables to value a property is also the days on market or DOM. This information is probably exclusively available through the MLS system.
I do definatly prefer to purchase in areas where the comp's DOM is low. You'll find better buys where DOM is high but you'll have to hold the property longer to realize your gain.
Personally I prefer a quick nickel to a slow dime.
GOOD LUCK
Bryan,
Good point, you always have to know the neighborhood! Not long ago, I was looking at a house that was listed at an unbelievably low price of $15k while comps (given to me by the seller's agent) suggested a value of 55-60k. When I ran this by my friend (also RE agent), we discovered that there were a total of 4 sales over the course of 1 YEAR (!) in that entire neighborhood and 2 of them were transfers between relatives. This house has been on the market for 9 months with no offers! If you guessed this house was in a major war zone, you guessed right! =)
Since we're on the subject, my biggest fear with foreclosures is that somehow the title search will not uncover a mortgage or a lien against the property. Is this possible and if so, has this ever happened to anyone? If someone can address this concern, that would be great!
Mark.
If you buy title insurance, it will protect you from liens that may show up later...
Mark,
If the foreclosure is bank owned "REO", then your key is to get title insurance, which is pretty standard. It is just that, insurance, if a situation arises that warrants its need.
I purchased one particular property, renovated it, and was scheduled to close and found out there were unpaid tax assessments. It still SOLD and closed rather quickly, but until I validated the problem was not mine, but the previous attorney, and my title insurance backed my position up, they held a couple hundred bucks of my proceeds. It took about 20 days and it was resolved... Good learning experience and validation point for title insurance.
fb
You make good points. What we do is consider the market cycle (buyers, sellers, neutral), the area the property is located (poor, fair, good, excellent), and interest rates (low, average, high). We're also looking at the impact unemployment has.
All these factors will impact how long a property will take to sell and consequently the profit we want in the deal. These are arbitrary numbers to describe a point.
For instance, if it's a seller's market, the property's in a good area, and interest rates are low (meaning it's easier to find qualified buyers) then we may say 6 months from purchase, rehab, to sale. If it takes less that's gravy but at least we planned for the worst.
Now if it's a buyer's market, in a poor area, and interest rates are high, historically, then we may say it'll take 10 months.
To me how long properties are in the MLS is not that relevant because it assumes I'm going to hand over selling to an agent who may or may not be better at selling properties than us. It depends on the cycle we're in.
Bruce Norris's Buying Systems course describes this phenomenon beautifully and it's far too much to describe here.
So, you should know your market, ability to rehab and sell a house, and the economic conditions your prospective buyer's live in.
if you buy a prop. in f/c at a good price. you can resell at the lower end of the market price. then you can have a good profit margin and a good turn over rate. it leads to the old adage "time vs. money". you have to determine for youself which of the to is more important at that time for your needs.....km
Thank you all very much for your replies. I must say -- this site is just full of great people who are willing to take the time to help. Just thought you should all know that it is greatly appreciated
As for my initial concern, how can I get the information on the MLS system? Is this available to the general public? I was told two things about the MLS: (1) it is only available to real estate brokers and (2) I MAY be able to get access to the MLS because I'm an attorney -- that is, someone told me that, because I'm an attorney, I can get licensed as a realtor/broker without having to take the exam -- is this true?
Regardless, is there a way to access the MLS and, if so, how can I use it to get Days on Market info (DOM) and to perform general research on a particular area.
Which brings me to another point -- besides driving all over the place to find out about particular neighborhoods, is there another method/resource available online to get this informaiton? That is, can I perform my research using the internet and/or library only? I want to make sure that my marketing efforts are directed to the right neighborhoods -- i.e., desireable, low crime, less competition (hehe), tons of foreclosures, etc. Generally, what should I be looking at to perform research on a particular area?
Again, any information would be enormously appreciated...
-Bryan :-D
the mls service is available to everyone it shows all the current listings, prices and prop. spec. but it does not shows certain things to the gen. public that only agents and brokers can access. things like the price that prop. "sold" for, what kind of fin. is on the prop., how much equity is in the prop., which prop. did not sell and are no longer on the market, ect info. like this is on the mls but is only available to agents and brokers.......km
OK. How does one access the MLS system? How can I get good comp info? Some people on this forum suggest www.homeradar.com. However, my short experience is that this service does not provide EVERY sale in particular areas and, in some cases, does not provide any information for certain zip codes.
I guess what Im asking is how to get the information available only to agents? Is there a way to get the information on a pay-for service? If so, what services exist out there for performing research and getting comps? Do these services exist?
I think a great service would be a research site that has done all the work for you. You simply plug in a zip code, and it spits back all sorts of info -- crime rate, vacancy rates, sale prices, DOM info, price trends, etc. Is there a service like this for the general public? If so, where is it? If not, what is my next best alternative?
-Bryan
put mls in your "search" you should find hundreds or try "realtor.com". for my money there are no on-line comps. service that are accurate. you will not get comps. off the mls unless you are a agent or broker.......km